More than the sacking of Cyrus Mistry as chairman of Tata Sons, it is the nature of allegations leveled by him regarding corporate governance standards at India’s iconic conglomerate that is making waves. Tata Sons, of course, has termed these as unsubstantiated and malicious claims, while indicating that it would respond in an appropriate manner, but they make for disturbing reading. Among the charges made by Mistry, one relates to the Rs 1,96,000 crore of capital employed by the group in what he calls “legacy hotspots” — bleeding concerns such as Tata Steel Europe, Tata Power Mundra, Tata Teleservices and Indian Hotels.

This capital, he claims, exceeds the group’s net worth and a “realistic assessment of (their) fair value” could result in a write-down of Rs 1,18,000 crore over time. Now, it can be argued that these were a result of investment bets taken in the heady growth years of 2004-2012 and cannot be ascribed to corporate mis-governance. There are other large business groups in India, who, too, can be accused of pumping in huge amounts of capital into what by hindsight seem questionable acquisitions. These groups have often refused to exit the investments even when they have been bleeding — often due to promoters’ ego and attachment, emotional or otherwise, to that business. In this case, however, the allegations are being made against a house perceived to symbolise ethical values in its operations.

The current row raises concerns over corporate governance practices that relate not necessarily to any particular group, but have to do with the inability of firms — private or state-owned — to ensure a separation of management and ownership. There is a tendency for promoters (including ministers and bureaucrats who act as though they “own” PSUs) not to allow their firms to be genuinely board-managed and accountable to shareholders. In most cases, the promoters refuse to take a backseat even after so-called retirement. Government has been a serial violator here, failing to appoint independent directors in its listed companies even after regular prodding by the securities market regulator, Sebi.

The washing of dirty linen in public by India’s most respected industrial house should be a wake-up call both for India Inc and the government. At a time when global investors still reckon that India is one of the few attractive investment hot spots during a slowdown in growth, it matters a lot that companies — especially those publicly listed and formally board-managed — meet the highest standards of corporate governance, whether in terms of proper disclosure of business performance or transparency in investment decisions. The government can play a major role here — by raising governance standards in companies it controls, which can then set the standards for others.